A Helping Tax Hand For The Ex-Pat

It's that time of year that we all love to hate, filing tax returns. Laws change every year and even if you're an American citizen it can seem complicated. If you've just moved to Houston from another country you're probably completely lost.

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Last count from the cities consulates has 40,000 Brits, 5-6,000 Norwegians and 40,000 Russian speaking people living in the Greater Houston area. That’s just barely scratching the surface of all the different nationalities here. Even though they’re not born here as long as they’re earning a wage they have to file a tax return.

In some countries the companies themselves file for their staff. So I asked one ex-pat, who happened to be my husband Nick, if he could ask a tax expert any questions what would they be? This is what he came up with:

"There are lots of different ways it seems to legitimately complete your tax returns, in terms of how you categorize your status and your income and when I do it in software, I get really different results. I owe the IRS money, the IRS owes me money. Is there one place where I can get comprehensive information for the idiot reader?"

John Allis is a certified public account who specializes in expatriate and foreign national taxation. He says there is one document every ex-pat should check out.

"IRS publication 519 would be the best place to look. That would be the initial starting point because they cover all the different possibilities of how you could file your return. For instance a non-resident may want to elect to be a resident for part of the year, so they can claim their spouse, claim an exemption for the kids, maybe even claim mortgage interest or real estate taxes paid outside the U.S.."

Once you’ve decided your return is ready and you file it, then you play the waiting game with the IRS. Nick worries that even though it looks right this return may come back to haunt him.

"So when I do my tax returns, it tells me that it’s possible I could be audited. For how many years can that go on because even though I think I’ve done everything right and I’ve followed all the rules in the software and it all looks ok I never quite believe that the government can owe me money, and so I live in fear that the IRS is gonna call me one day and I’m gonna have to pay it all back."

Allis acknowledges that feeling is perfectly normal. He says even American citizen’s worry about that but luckily those returns won’t be hanging over you forever.

"Commonly it’s about three years from the due date of your return or when you file. Unless they think that there was some serious fraud involved."

More generally Allis says there are three major pitfalls for all ex-pats to look out for:

"The most important thing is they need to keep accurate track of the days in and out of the country. Try to keep some documentation, since that’s gonna be a big factor in whether or not they’re a tax resident. The second is making sure that they are including their world wide income. Probably the third is that they’re taking care of any information reporting that’s required, because there’s a lot of risk to not doing that this year. The foreign bank account report and the foreign asset that’s new this year and the enforcement has been stepped up considerably."